4 Key Tax Considerations To Maximize Your Retirement Income

(don’t forget to checkout the video of this blog too)

They say that you “shouldn’t let the tax tail wag the dog”… Meaning:

Don’t plan your entire retirement around minimizing your tax bill.

In many ways, I agree.

You first want to maximize your guaranteed income in retirement & ensure that a segment of your retirement wealth is completely unaffected by market losses.

This is an important psychological element of retirement planning.

In fact, it helps you achieve higher returns in the market because you’re able to remain discipline when the market drops because of your protected assets.

But, it’s also important that you minimize taxes going into retirement as another way to maximize your retirement income.

Here are 4 Key Tax Considerations that will help you maximize your retirement income:

✅ Maximize taxable retirement dollars with your standard deduction AND the low marginal tax brackets

Fully leveraging your standard deduction means you are able to take an equivalent amount out of a taxable environment, completely tax-free.

Now, it’s not “officially” tax-free, but because you are offsetting it with a deduction, there will be no tax liability on those dollars.

So, it IS tax-free!

Next you maximize the income withdrawal from the 2 lowest marginal tax brackets (which as of 2024 are the 10% and 12% bracket).

This allows you to collect $123,500 for less than a 9% overall effective federal tax rate (MUCH lower than most retirees are used to paying) 😎

✅ Consider the Tax-free income available from Social Security

Even if you’re unable to collect social security completely tax-free there is a very distinct tax advantage from social security income…

A portion of your social security income will ALWAYS be tax-free.

Worst-case you’ll collect 15%-50% of your social security will be a completely tax-free income source.

And best-case, you’ll collect it all tax-free!

This allows you to collect more income at a lower effective tax rate in retirement.

✅ Delaying social security can allow you to reposition money into tax-free buckets

You do maximize the income value of social security by delaying it, but it also provides you with another opportunity to reposition some of your money into buckets that have tax-free features down the road.

This type of strategy definitely deserves some one-on-one review-time as it’s very case-by-case in what makes the most sense.

But, delaying social security can give you more time & capacity to move money into tax-free buckets like Roth IRA’s & Cash Value Life Insurance (depending on if your goals are: 1️⃣ tax-free retirement or 2️⃣ leaving a tax-free legacy)

✅ Use your taxable money strategically to manage RMDs

The last thing you want is to be FORCED into a higher tax bracket in the later years of retirement.

That’s why it’s so important to begin managing your taxable retirement assets EARLY in retirement, rather than waiting for a large, potential tax bomb to go off in the later years of retirement (aka your required minimum distributions).

That’s why you must have a strategy that allows you to pull the maximum amount of income out of your taxable retirement accounts, without triggering too much taxation, while also ensuring that you aren’t just deferring your tax bill for later.

Let’s chat 💬😎